Sioux Falls construction for 2019: Values down, permits up and signs of good things ahead – Argus Leader

Buy Photo

Construction crews work on the new Jefferson High School on Tuesday, Jan. 7, 2020 at the site near North Marion Road and Career Avenue. (Photo: Abigail Dollins / Argus Leader)

Snow and the cold are no match for Sioux Falls construction industry.

Even in the middle of January, with remnants of the most recent winter storm still visible and a bitter wind blowing, one particular work site in northwestern Sioux Falls was bustling.

Jeff Kreiter stopped to let an excavator pass as he made his way back to the trailer for an afternoon meeting. Behind him were a network of towering walls, beams and joists that will eventually coalesce to become Thomas Jefferson High School.

Five years ago we were thinking it might need to happen, said Kreiter, operational services director for the Sioux Falls School District. The population just kept increasing.

Population growth drives development,and for 2019 the high school was the single biggest project approved by the city in another busy year for the Sioux Falls construction industry.

Jefferson High: Final designs could bring Sioux Falls School District under budget

Even with plenty of activityand a few massive projects, numbers released by the city's planning departmentlast week show the combined value of building permits issued in 2019 dropped for the first time in nine years, a break in a run of consecutive record-breaking years for the citys construction industry.

Shifting building trends, a tight workforce, tornado recovery and a few major projects all came into play last year for Sioux Falls contractors.

Some takeaways:

The construction industry continued to hit its stride last year, with hundreds of million of dollars in projects approved by City Hall and thousands of building permits issued.

In fact, the number of building permits issued last year marked a three-year high, with 7,355 permits pulled for projects across the city.

The combined value of those permits was $771.5 million, showing a strong growth rate overall, said Jeff Eckhoff, planning services director for the city.

You talk to the builders, its a very strong economy, a very strong market for them, he said.

The decrease in value from 2018 to 2019 amounted to $15.1 million a 2 percent dip. But the drop is less of a concern when you consider the signs of economic strength apparent from a more detailed look at last years construction data, said Michael Bender, founder and principal of Bender Commercial Real Estate.

2019 was not spectacular, it was solid, Bender said.

A view shows the future main entrance of the new Jefferson High School on Tuesday, Jan. 7, 2020 at the site near North Marion Road and Career Avenue. (Photo: Abigail Dollins / Argus Leader)

A drop in construction on new apartments affected the overall numbers

A few big-ticket projects werent enough to make up for a shift in how developers treated multi-family housing.

USD Discovery District: Construction on the first phase set for April

The one area where we were down significantly was in the apartments, Eckhoff said.

A breakdown of building permit totals for last year shows a significant departure from the recent boom years for the construction of new apartment buildings.

Developers flooded the housing market with massive apartment complexes in 2016 and 2017, causing a spike in the number of new rental units added.

The trend reached a breaking point in 2018 and continued to reverse course last year. Construction value on new apartment buildings plummeted from $117.4 million to $65.6 million in a two-year period. The result: The city added nearly half of the number of rental units it added in 2017.

Our demand didnt double, Bender said. Yet, our supply doubled.

Builders across the skilled trades have struggled against Sioux Falls low unemployment for years.

The citys low jobless rate has created a shortage of workers across the industries, and construction is not immune. Contractors in Sioux Falls have been some of the busiest and most vocal in advocating for workforce development initiatives and partnering with Southeast Tech and area public schools.

Building Services Director Jeff Kreiter observes the construction work on the front side of the new Jefferson High School on Tuesday, Jan. 7, 2020 at the site near North Marion Road and Career Avenue. (Photo: Abigail Dollins / Argus Leader)

Bender sees labor as a limiting factor on the industrys activity and he wonders if the numbers for last year would have been better if there had been a better supply of workers.

Construction: Schools top list of Sioux Falls' biggest projects in 2019

He believes the citys yearly construction totals could some day top $1 billion, but only if contractors have enough workers.

The labor market has put pressure on construction interests, Bender said.

Bender and his company host an invite-only economic outlook forum each year, analyzing past real-estate trends and making predictions for the year to come.

Now in its 23rd year, the Bender Market Outlook is slated for Feb. 20 at the Washington Pavillion, and the staff at the Sioux Falls-based firm are already busy preparing.

Despite the decrease in combined permit value last year, Bender notes that commercial projects continue to outpace residential. There was a $30 million uptick in new commercial construction overall, driven by the addition of new strip malls, hotels and restaurants, according to city data.

Thats a good sign, Bender said.

An updated map shows construction progress on the new Jefferson High School on Tuesday, Jan. 7, 2020 at the site near North Marion Road and Career Avenue.(Photo: Abigail Dollins / Argus Leader)

The reason being that commercial is a larger dollar amount, he said.

Another indicator of economic strength is when there is more new construction than additions or remodels.

In Sioux Falls case, new construction outpaced addition-remodel totals for both commercial and residential projects.

Most people look for reasons not to make a decision, Bender said.

Five massive projects, most of them funded by taxpayers, were responsible for providing the biggest boost in value for the construction industry.

Two new schools contributed significantly to the combined value of permits issued in 2019, along with a project from the city, a local bank and a newcomer to the citys competitive medical services industry. They are:

Combined, they make up one-fifth of the total permit value for last year.

USD Discovery District: LifeScape to build new children's campus

Giant projects like the two schools might seem like outliers, but Bender said its often the norm. Each year there are a small group of significant projects that buoy the combined value of building permits issued.

After overseeing construction on the Avera Specialty Hospital and a few other major projects from recent years, Sioux Falls-based contractor Journey Group continued its dominance of the citys construction industry last year.

Journey filed permits for Jefferson High School and continued its work for Avera, which for 2019 included new permits the Avera Human Performance Center and extensive repairs in the wake of the fall tornadoes.

We believe the majority of our success is built on great relationships and the partnerships we have grown over the years here in Sioux Falls and in the region, Journey President and CEO Randy Knecht said in an emailed statement.

The top contractors for 2019 by permit value were:

Three tornadoes touched down in Sioux Falls this fall, significantly damaging residential and commercial buildings across the city.

Recovering from the devastation meant significant rebuilding by Avera Health and businesses along 41st Street, along with nearby homes affected by damage.

There were nearly 170 building permits issued that mentioned the storm, worth a combined value of $13.7 million.

Read or Share this story: https://www.argusleader.com/story/news/business-journal/2020/01/16/2019-construction-sioux-falls-values-permits-look-ahead/4476827002/

Read more here:
Sioux Falls construction for 2019: Values down, permits up and signs of good things ahead - Argus Leader